Torrent Pharma - Q2FY21 Result Update - YES Securities

Our View

- Increasing lack of visibility on US sales a blessing in disguise as branded share seen increasing ~200bps to 65% in FY22; similar rerating at IPCA (16x to 26x) was seen in the recent past

- Domestic market will increasingly reward players with larger brands- Torrent to maintain growth of big bands like Shelcal and Losar which will continue to gain share

- Margins can surprise on upside as MR productivity to touch Rs1mn per MR per month; current revenues per MR already one of the highest in industry

- Chronic share is amongst highest and relative to Alembic we reckon Torrent exudes better confidence on growth - hence should trade at a premium to Alembic.

- Raised our FY22 EPS by ~12% to Rs91 on improved margin assumption and now are ~5% ahead of consensus.

- Upgrade Torrent to BUY from SELL with revised TP of Rs3,200 (vs RS2,030 earleir) based on 35x FY22 PE; solid FCF yield of ~3.5% lends support

Highlights

- Q2 revenues up 1% yoy as India sole driver; Germany should revive by March 2021; Brazil cc growth better but eaten away by currency depreciation

- Gross margin declined on higher inventory provision; inventory days higher as API buying elevated in face of pandemic

- Net debt to decline further in FY21 after repayment of Rs4.4bn in FY21; net debt/EBIDTA seen comfortably below 0.5x in FY22

Risk to our call

- Any slippage in margin and/or relative tilt towards US market with associated investments would be a dampener in our view

Shares of TORRENT PHARMACEUTICALS LTD. was last trading in BSE at Rs.2654.45 as compared to the previous close of Rs. 2734.35. The total number of shares traded during the day was 23676 in over 2381 trades.

The stock hit an intraday high of Rs. 2773.85 and intraday low of 2644. The net turnover during the day was Rs. 63804283.

Source : Equity Bulls

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